1. When $#@! happens Tim Sanderson – Senior Technical Manager November 2014

2. This presentation is given by a representative of Colonial First State Investments Limited AFS Licence 232468, ABN 98 002 348 352 (Colonial First State). Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) is the issuer of interests in FirstChoice Personal Super, FirstChoice Wholesale Personal Super, FirstChoice Pension, FirstChoice Wholesale Pension and FirstChoice Employer Super from the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557 and interests in the Rollover & Superannuation Fund and the Personal Pension Plan from the Colonial First State Rollover & Superannuation Fund ABN 88 854 638 840 and interests in the Colonial First State Pooled Superannuation Trust ABN 51 982 884 624. The presenter does not receive specific payments or commissions for any advice given in this presentation. The presenter, other employees and directors of Colonial First State receive salaries, bonuses and other benefits from it. Colonial First State receives fees for investments in its products. For further detail please read our Financial Services Guide (FSG) available at colonialfirststate.com.au or by contacting our Investor Service Centre on 13 13 36. All products are issued by Colonial First State Investments Limited. Product Disclosure Statements (PDSs) describing the products are available from Colonial First State. The relevant PDS should be considered before making a decision about any product. Stocks referred to in this presentation are not a recommendation of any securities. The information is taken from sources which are believed to be accurate but Colonial First State accepts no liability of any kind to any person who relies on the information contained in the presentation. This presentation is for adviser training purposes only and must not be made available to any client. This presentation cannot be used or copied in whole or part without our express written consent. © Colonial First State Investments Limited 2014. Disclaimer

3. What we’ll cover... Planning implications of… Redundancy Divorce

4. Redundancy Check employer payment summary - components and taxation Non - termination payments Annual leave: Maximum tax 32% Long service leave accrued after 15/8/78: Maximum tax 32% Termination payments Includes golden handshakes, severance pay, unused sick leave, rostered days off, payments in lieu of notice Calculate tax free component: $9,246 plus $4,624 for every year of completed service Remainder taxed as an employment termination payment

5. Redundancy Check ETP taxation It’s complicated, need to consider ETP cap Whole of income cap Important to calculate as amount withheld by employer may not be the final tax payable Refer to FirstTech “Termination Payment Essentials” or call FirstTech to determine ETP taxation

6. Redundancy ETP cap $185,000 Over age 55: 17% Under age 55: 32% 49%** * including Medicare Levy **uncertainty over 2% deficit levy Whole of income cap does not apply to ETPs paid due to genuine redundancy (excluded) Only have to worry about ETP cap Genuine redundancy = amount paid in addition to the amount payable if left employment voluntarily

7. Redundancy ETP cap: strategy considerations Delay payment to next financial year if turning 55 Tax rate of 17% / 32% Delay termination date to after work anniversary to increase tax free amount Additional $4,758 tax free Delay payment to next financial year if marginal tax rate likely to be less than ETP tax rate

8. Redundancy * including Medicare Levy **uncertainty over 2% deficit levy Need to consider both “whole of income cap” and “ETP cap” where termination payment includes: Genuine redundancy, and Other ETP amounts Other ETP amounts include: Amounts that would have been paid if voluntarily terminated employment Ex gratia payments Non-excluded ETP ETP cap $185,000 17% / 32% 49% Whole of income cap $180,000 49%

9. Redundancy Whole of income cap: strategy considerations $180,000 cap reduced by other taxable income eg. salary, leave payments, genuine redundancy payments Cashing out super within low rate cap Not taxed but still assessable income Triggering large capital gains in year of receiving ETP Strategy: Can they receive ETP in next financial year?

10. Redundancy Example: timing receipt for whole of income cap Chris: aged 40 with 10 years of service Made redundant on 1 June 2014 Genuine redundancy payment of $100,000 $55,486 tax free, $44,514 included in ETP Ex Gratia payment of $130,000 Salary in 2013/14: $140,000 Salary in 2014/15: $80,000

11. Redundancy 1. Receive everything in 2013/14 $180,000 whole of income cap reduced by: Salary $140,000 Redundancy $44,514 Ex gratia payment of $130,000 above whole of income cap Taxed at 49% ($63,700) 2. Receive ex-gratia in 2014/15 $180,000 whole of income cap reduced by: Salary $80,000 Ex gratia payment of $130,000 received when $100,000 remaining cap $100,000 taxed at 32%, $30,000 taxed at 49% $46,700 tax overall ($15,000 saving)

12. Redundancy Leave payments, ongoing or lump sum Compare taking leave payments where redundancy: ongoing versus lump sum Strategy: Receiving payments ongoing can assist in delaying termination payments to next financial year Ongoing leaveLump sum leave SG payableMaximum tax 32% Accrues further leave Taxed at MTR Potentially salary sacrifice

13. Redundancy Should they contribute to super? Accessibility. Will they be able to access their funds if required? TTR? Are they a member of an employer super fund and have to rollover as they have left employment? If yes, review insurance cover Strategy: contributing to super reduces assessable income & assets under pension age for Centrelink

14. Redundancy Watch out for Div 293 tax Additional 15% tax on concessional contributions by high income earners (income over $300,000) Employer ETPs and leave payments included in income calculation Tax bill won’t be received until after lodge tax return Maximum additional tax 15% x $35,000 = $5,250 Strategy: Division 293 tax may be reduced by receiving payments over 2 financial years

15. Redundancy Should client repay debt? General rule is to pay off non-deductible debt first Be careful not to close credit cards as may have trouble accessing credit in future if does not find employment Accessibility – can they get access to funds if used to repay debt? Strategy: Certain debt repayment may assist with Centrelink income and assets tests

16. Redundancy Debt repayment example Michael is 49yo and received a redundancy payment He has outstanding debt against his home and is considering reducing the debt by $50,000 If Michael places the funds in a mortgage offset account $50,000 will be an assessable asset and deemed If Michael repays his outstanding line of credit against his home $50,000 is not assessable as reduces debt against an exempt asset

17. Redundancy Centrelink liquid assets waiting period Applies to Newstart, Austudy and Sickness Allowance Liquid assets exceeding $10,000 for couples or $5,000 for singles Divisor $500 for singles or $1,000 for couples Maximum 13 weeks Liquid assets include cash, bank accounts, shares and managed funds Strategy: LAWP can be reduced by making one voluntary payment on a debt since becoming unemployed. Debt cannot be related to the principal home and must be voluntary (ie. more than minimum payment)

18. Redundancy Example: voluntary non-housing debt repayment Paula (single) has liquid assets of $10,000 Credit card debt $3,000 Effect of Paula paying off her credit card Liquid assets reduce to $7,000 LAWP = $7,000 - $5,000 / $500 = 4 weeks Liquid assets waiting period reduces from 10 weeks to 4 weeks

19. Redundancy Centrelink income maintenance period Applies to Newstart, widow allowance, sickness allowance, parenting payment and DSP Includes lump sum leave payments such as annual, long service and redundancy payments Duration: number of weeks of leave payments + number of weeks of redundancy (eg. 2 weeks for every year of service) + number of weeks golden handshake represents (divide payment by weekly wage) Strategy: If leave is taken as a lump sum prior to redundancy, it will not be assessable income once employment ceases for Centrelink.

20. Redundancy Example: how income maintenance period works Laura terminates employment and receives 3 weeks unused annual leave 6 weeks unused long service leave 8 weeks redundancy (2 weeks pa over 4 years) $10,000 ex gratia payment Gross weekly income while working was $1,200

21. Redundancy Example: how income maintenance period works Calculation of IMP 3 weeks unused annual leave + 6 weeks unused long service leave + 8 weeks redundancy payment + 8 weeks ex gratia payment $10,000 / $1,200 Laura would have $1,200 per week counted as income for 27 weeks from the date her termination payment is paid.

22. Divorce Step 1: separation Close joint accounts Get a copy of all financial statements Create a new budget Rent on new residence (if applicable) Change name on utility bills Review debts Are any debts in joint names? Be careful not to close credit cards as non-working spouse may have difficulty accessing credit

23. Divorce Centrelink assessment on separation Partner who moves out of principal residence - non- homeowner If home jointly owned, 50% of market value assessable Non-homeowner allowance asset threshold $348,500 If they subsequently buy a house may assist but this may not be possible until property settlement Partner who remains in the principal residence - homeowner Advantaged for Centrelink purposes where home value exceeds $146,500 Other income and assets assessable depending on whose name its in 50% for jointly held assets

24. Divorce Centrelink: Widow allowance woman born on or before 1 July 1955 widowed, divorced, or separated since turning 40 no recent workforce experience employment of 20 hours or more a week for 13 weeks during the last 12 months. allowance income and assets test income must be less than $999.00pf assets must be less than $202,000 homeowners or $348,500 non homeowners Maximum $515.60pf

25. Divorce Case study John and Glenda separated 2 months ago John is 58 and working fulltime whereas Glenda age 57 ceased work 18 months ago Assets Glenda’s share Home (jointly owned) $700,000$350,000 Contents (jointly owned) $ 10,000$5,000 2 cars (jointly owned) $25,000$12,500 Savings account (Glenda) $12,000$12,000 Savings account (John) $16,000- TOTAL$379,500

26. Divorce Case study Glenda’s assets of $379,500 exceed the non-homeowner asset limit of $348,500 not eligible for an allowance Once the property settlement is finalised and Glenda receives cash of $350,000 she can either purchase a home or contribute to superannuation

27. Divorce Centrelink – parenting payment (single) single and caring for a child under 8 only one parent can receive payment income and asset tests income must be less than $2,015.35pf assets must be less than $202,000 homeowners or $348,500 non homeowners Maximum $720.30pf Other payments: FTB part A and B Childcare rebate and payment Pensioner concession card

28. Divorce Child support Must obtain child support agreement if receive more than base rate FTB part A Child support reduces FTB part A by 50c in the dollar above the maintenance free area $1,522.05 plus $507.35 for each additional child Child support formula: both parents' incomes are considered a self-support amount is deducted from each parent's income the percentage of care each parent provides is taken into account children from first and subsequent families are treated in a similar way

29. Divorce Child support – children aged 12 and younger Parents' combined child support income 1 child2 children $0 to $35,28517c for each $124c for each $1 $35,286 to $70,569 $5,998 plus 15c for each $1 over $35,285 $8,468 plus 23c for each $1 over $35,285 $70,570 to $105,854 $11,291 plus 12c for each $1 over $70,569 $16,583 plus 20c for each $1 over $70,569 $105,855 to $141,138 $15,525 plus 10c for each $1 over $105,854 $23,640 plus 18c for each $1 over $105,854 $141,139 to $176,423 $19,053 plus 7c for each $1 over $141,138 $29,991 plus 10c for each $1 over $141,138 $176,423 and over$21,523$33,520

30. Divorce Binding financial agreement Written agreement for splitting assets if relationship ends Legally binding on the spouses if: both have a copy both have received independent legal advice (rights, advantages/disadvantages) both have signed has not been terminated has not been set aside by the Court Can only be set aside by the Court due to fraud, non- disclosure or unconscionable conduct

31. Divorce Court orders Require leave of court if not brought about within: 12 months from divorce 2 years from the end of a de facto relationship Consent order Agreement between spouses, then approved by Court Must be just and equitable Financial order Contested settlement where court makes a decision Must be just and equitable Court orders are binding on the couple

32. Divorce Superannuation Determine income needs now and in retirement Determine lump sum required to meet income needs Determine lump sum tax and preservation Advise on appropriate superannuation fund for non-member spouse Review binding nominations – nomination to spouse still valid when separated but not divorced

33. Divorce Superannuation Legal process Method Court Order FlaggingSplitting Interest SplitPayment Split Pension paymentsLump sum payments Puts ‘stop’ on withdrawals and rollovers prior to condition of release New account for non-member spouse Each payment is split as it is made Superannuation Agreement

34. Divorce Splitting for non-member spouse Adviser role – advise on most appropriate new superannuation arrangement Create new interest Payment of lump sum If UNPB or condition of release Transfer to other fund Spouse Non-member spouse Non-member spouse

35. Divorce Superannuation: tax and preservation Member benefits reduced by splitting payment Everything is proportional tax components preservation Any preserved amount transferred would remain so until the receiving spouse satisfies a condition of release If access to super is an issue for one spouse (eg, because of a difference in ages), this could be dealt with through a binding financial agreement

36. Divorce Example: Duncan is splitting 30% of his super balance to Julia Tax components Duncan (existing) Julia (new) Duncan (new) Tax free component $100,000$33,333$66,667 Taxable component $200,000$66,667$133,333 PreservationDuncan (existing) Julia (new) Duncan (new) UNP$20,000 $6,667$13,333 RNP$5,000 $1,667$3,333 Preserved$275,000 $91,667$183,333

37. Divorce Property settlement - transferring assets CGT relief CGT rollover relief applies where an asset is transferred due to a binding financial agreement Must be transferred as a result of the relationship breakdown Receiving spouse inherits the original cost base CGT on eventual sale should be taken into account when determining the property settlement

38. FirstTech 13 18 36 firsttech@colonialfirststate.com.au